Question

Consider the following two mutually exclusive projects: Year NM Cash Flow (A) Cash Flow (B) -$419,000 -$37,000 47,000 19,800 59,000 13,900 76,000 15,600 534,000 12,400 The required return on these investments is 11 percent. a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) e. Based on your answers in (a) through (d), which project will you finally choose? Project A Project B Project A 1.44 years 2.21 years 78,560.95 11.694 24 $ $ Proiect B

Answer 1

м- Project "A" outfloco . $ 419,000 м- © Indlou yooon! CE pvd @ 11% pree 1 47000 10.9009 42,342.3 2 59000 0.8116 47,88474 76000 10.73127 55,571,2 5 34000 0.6587351745,8 PVZ 497,54 3.7 -Pvo (419,000) مرا For calculating IRR pul@18% PUCE Pv Jacor@16% PVCF 0.8691 40518.7 0.8475 39539.5 0.743. 2 43848.80-7182 42373.8 0.6406 48685.6 0.6086 46253-6 0:9993 29492820:5158 2754377 427981.3 40389701 419000 Pro 419 000 NPV 8981•3 |(15101.9) گم ។ PVE Nov 78,54 3.7 PV Factor NPV (8981.3+) 151009 Pay-back period You cryn flow cumilativelf 47000 47000 a 59000 106000 3 76000 182000 4 534000 716000 2%. T - $ 94084.21 1?(0.757) $8981931, IRR = 16% +0.154 => 16.754) Brigitubiety Erdex = PVC Amount to be recovered $ 419000 Amount recovered tillyecn3 $182000 - Balance $ 237,000 Pro ) 497.54307 419000 => 1.19 ly ear 2 $ 534000 644 X $ 237000 .: PBP 2[3.44 yeary anned with CamScanner

Project B out flow J $ 37,000 0 Inflow year CE Puj@l1X, PVCE PVCF 198000900917837.82 0-8 0.64 8896 (8) For catulating IRR Pud@asy. PVCE Prg@27% 15840 0-7874 15590.52 - 0:62 8618 7987.2 0.4882/7615092 0.4096 5079-04 0.3844 4766.56 37802-24 36591 (37000) (37000) NPV $802.24 $(409) 2 13900 0.8116 11281-24 3 15600 0.7312 11406.72 4 112400 0.6587 8167.88 PVI 48693.66 - PVO (87000) NPU $ 11693,66 0.512 PVE Pro ☺ Payback period & PV factor pax y 1,327.9 NPV - 1 12.11.24 - 1802-24 Botal amount to be recoverd -> $ 37000 - Balance recoverd tilt gadyocer a) $ 33700 Balance $ 3300 TRRZ 057 +1.32%. = 96.32% Year CR Cunilative Ⓡ PI PVe 1. Pro a) 48693.66 19500 19703 13900 33700 15600 49300 12400 a 3 4 37000 2) 103160 ~ 1032 Redeco - lyear $15600 0.019 - $ 3300 E PBP: 9-21 yeary ahnsdlth camseenner Conclusion - Profitability index is more in Porglect 'B' so ists advisath to acceek Phoj e c+ 3